India’s clean energy fund hijacked by Ganga and GST

To say India has an unhealthy appetite for coal would be an understatement. Last year, coal production in India peaked at over 600 million tonnes and imports brought in an additional 200 million tonnes to the country’s shores. But even as the Indian government lobbies for climate finance and justice internationally, its own schemes of incentivising research and innovation in clean energy are threatened by its policies. One such scheme is the Clean Energy Cess on Coal (renamed the Clean Environment Cess in 2017) and the National Clean Energy Fund (renamed the National Clean Energy and Environment Fund in 2017) born out of it.

India’s National Clean Energy Fund

Introduced in the 2010-’11 budget by then Finance Minister Pranab Mukherjee, India’s National Clean Energy Fund was set up to combat climate change. Guidelines issued by the Ministry of Finance in April 2011 make it clear that the Fund was created for “funding research and innovative projects in clean energy technologies”.

This included projects on renewable and alternate energy initiatives and infrastructure, “clean fossil energy”, environment management in geographical areas surrounding energy sector projects and projects identified under the National Action Plan on Climate Change and National Mission on Strategic Knowledge for Climate Change.

The fund was made possible by levying a Rs 50 clean energy cess on every tonne of coal produced or imported. The cess, collected by the Central Board of Excises and Customs, has been steadily increased over the years. It doubled to Rs 100 per tonne in 2014, Rs 200 per tonne in 2015 and Rs 400 per tonne in the 2016 budget.

With these hikes and coal production at an all-time high, the fund has grown to become a staggeringly well-funded corpus. However, the utilisation of funds towards clean energy initiatives remains abysmal. Of Rs 54,336 crore collected as part of the coal cess since its inception in 2010, less than half has been transferred to the National Clean Energy Fund so far, while only 16% has gone towards financing any projects. Only 32% of the cess collected in 2016-’17 will go to the National Clean Energy Fund. Questions regarding this large quantum of unspent funds went unanswered by the Ministry of Finance’s Department of Expenditure at the time of publishing.

These questions have also been raised by the Comptroller And Accountant General of India in successive financial audits of the Union Government’s accounts in 2013, 2014, 2015 and 2016. It found that “no perceptible action has been taken.” In 2016, the Parliament’s Standing Committee on Finance recommended that unspent funds accumulated with the Fund for more than two years could even be transferred to the Consolidated Fund of India.

While the ratio of cess collected to projects financed has been on the rise, from 8% in the first three years, to 41% in 2015-’16, there has not been a significant rise in the number of projects approved. Nine projects were approved in 2011-’12 and 10 projects in 2015-’16. While this could mean that the projects have grown in scope even though the number is unchanged, the list of projects approved and rejected is not available in the public domain.

So where is this money going and to what end?

Last year, coal production in India peaked at over 600 million tonnes and imports brought in an additional 200 million tonnes to the country’s shores.

Definitions of usage

Another key problem with the fund is the kind of projects it can be used for. It was designed purely to fund clean energy initiatives and the government has come under fire from civil society groups in the past for being vague and generous with what that constitutes. These sub-heads have included everything from coal gasification – an extremely water-intensive way of transforming coal to natural gas – to subsiding the Green India Mission under the National Action Plan on Climate Change.

The government’s response to the flak was to further expand the scope of the Fund in the 2015-’16 Budget speech to include environment initiatives and to rename the coal cess in the 2016-’17 Budget as the Clean Environment Cess.

On March 29, the Ministry of Finance issued an office memorandum to amend the 2011 guidelines further. The clean energy and environment initiatives the cess will now support range from production of nuclear power under the Department of Atomic Energy, urban development projects under the Smart City Mission, solid waste management and “projects undertaken in pursuance of the National River Conservation and the National Lake Conservation programmes”.

However, well before the new guidelines were announced in March, the inter-ministerial Group that screens the National Clean Energy Fund grants had already approved these projects in the 2016-’17 budget itself.

Of the Rs. 8,447 crores allotted to the National Clean Energy Fund to be spent in 2016-’17, a whopping Rs. 2,250 crores was sanctioned to the Namame Ganga Plan for the clean up of the river, in addition to the Rs 1,000 crores allocated to the Ministry of Water Resources, River Development and Ganga Rejuvenation in 2015-’16. The Ministry of Environment, Forests and Climate Change has been allocated Rs 400 crores to support Project Tiger and Project Elephant, which is ironic because coal mining continues in critical wildlife habitats.

“The Fund cannot be treated as an adjunct to the general Budget, wherefrom shortfalls in meeting budgetary requirements of already approved Plan schemes can be met,” remarked Sunil Mitra, former Finance Secretary in the very first meeting of the inter-ministerial Group.

The lesson fell on deaf years. Aside from repeatedly being used to meet budgetary shortfalls of ministries, the coal cess will now also be used to reimburse state governments for any potential loss in their revenue generation as a result of the Goods and Service Tax. This has been achieved by quietly inserting the cess into a schedule in The Goods And Services Tax (Compensation To States) Act, 2017, a move that drew flak from former ministers including Jairam Ramesh who called it a “complete let-down”.

Structural issues

So how do you get a project funded under the National Clean Energy Fund? While individuals, NGOs and private agencies can approach the Fund for money, a project would need to obtain a staggering 40% of its finance independently before it can even send such a proposal.

So what’s the problem in getting part-funding elsewhere? The National Clean Energy Fund’s 2011 guidelines disqualify projects that seek part-funding by a private sponsor, national and international bodies, and even other arms of the government.

If you are lucky enough to raise the money yourself, be prepared to scrounge for more. After your project is scrutinised by the ministry you apply to an inter-ministerial group, you can hope to get funds for only 40% of the project costs as a loan or as a deferred grant, if it is approved. The reasons for this arbitrary cap on grants have not been given, nor has it been explained why cutting-edge projects with perfectly good intentions cannot be fully funded.

However, even these guidelines are not religiously followed. In 2013, the Centre for Budget and Governance Accountability published a paper in which researchers looked at the minutes of the first three meetings of the inter-ministerial group responsible for screening projects. They found its approach to be ad-hoc, with “many instances when the approved funding exceeds 40% of the total project cost.” These included a proposal by the Ministry of Environment and Forests seeking funds for its Green India Mission and by the Ministry of New and Renewable Energy for solar power projects, for which budgetary allocations were already in place.

Organisations, think-tanks and even private agencies have all spoken out about how the National Clean Energy Fund needs an overhaul, both in terms of management and intent. A 2014 KPMG study, in partnership with the Shakti Sustainable Energy Foundation, details how the eligibility, screening and oversight mechanisms in the Fund need to be reworked and frameworks for basic governance, monitoring evaluation need to be put in place. Currently, there are no mechanisms to monitor how commercial viability of projects is being met.

The cost of coal

Regardless, the voices that once again have no say in how these funds are spent are those who bear the costs of coal mining in India and live in its most impoverished and critically polluted districts.

“It’s almost criminally unfair that these massive sums, drawn from the subsidised loot of Adivasi lands, will be spent on a glorified distant river like the Ganga, and not on the Damodar, the Mahanadi, or on public health remediation,” said Sreedhar Ramamurthi of the Environics Trust, an organisation that works on the rights of mining and climate-change affected communities. He points out that most renewable energy projects for which spending is planned in 2016-’17 are of the likes of large solar plants, while village assembly-led decentralised electrification features as the last point in the list.

Affected communities have had little say in how the massive funds collected for District Mineral Foundation, a non-profit trust run by the government for development of mining-affected regions, are being spent, either. Miners have to pay up to 30% of the royalty on minerals to the District Mineral Foundation, set up after India’s Mines and Minerals (Development and Regulation) Amendment Act came into force in 2015.

Thought to be a step towards greater equity for communities worst hit by mining impacts, more than Rs 5800 crores have been realised under the District Mineral Foundation in three years, with major collections coming from coal-mining districts.

However, a 2017 study by the Centre for Science and Environment in 50 mining-affected districts found serious problems in the way the District Mineral Foundation Foundation budget has been allocated. In Singrauli, Madhya Pradesh, more than 63% the 2016-’17 District Mineral Foundation Foundation budget was used for building roads and bridges, while crucial issues such as nutrition, access to clean drinking water and education got less than 1% cent or found no mention. This, in a region classified as India’s ninth most critically polluted industrial area, where over 35% of children suffer from malnutrition and less than 1% of rural households get treated tap water.

Adivasi communities in the coal belt will also have no say over reforestation of their lands after they have been razed, under the new Compensatory Afforestation Fund Bill or CAMPA Bill. Under the legislation, every time forestland is diverted for non-forest purposes, companies or institutions must deposit money towards compensatory afforestation. But the reins of this fund – and the control over how it will be used – remains with the state government, forest and environment officials, with no consent of affected village assemblies needed.

If India is really keen to push the envelope on renewable energy, it must begin with accountability to citizens, particularly communities in its coal belt, for the funds that are already at its disposal. While the present government’s moves to step-up allocations of the National Clean Energy Fund are commendable, ways to expand its definition must be debated through Parliamentary process, instead of being used to subsidise pet schemes such as the Smart City, Namame Ganga and Swacch Bharat programmes.

It must make information available to affected communities, civil society and the private sector, and hold open consultations on which projects are funded, how they can apply for the grants, instead of making room for only ministry-funded projects.

In a situation where power procurement costs have reduced, it is vital to look at what is being subsidised at the cost of India’s land, water and forest security. With a fund this large and climate change risks this high, self-fulfilling, discretionary allocations must be avoided.

India, like all developing economies, deserves all the climate funding it can get. Taking account at home, however, must be the first step in building faith that India can use the already ample-funds it has to weather the storm already at its door.